Easing the natural-gas crunch

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High gasoline prices have grabbed headlines
over the past year, but the bigger story is natural gas. The rise
in natural-gas prices has been considerably greater and imposes
serious burdens on consumers and industries that use natural gas.
Yet domestic gas production has been flat, largely due to legal and
political constraints on drilling.

Throughout the 1990s, natural gas was cheap and plentiful, and
policymakers became complacent about its future. Yielding to
opposition from environmentalists as well as legislators from
Florida and a few other coastal states, the federal government
placed strict limits on new exploration and drilling, especially in
offshore areas.

At the same time, tough Clean Air Act regulations raised the cost
of generating coal-fired electricity, making natural gas an
attractive alternative for utilities. As a result, most power
plants built since 1990 have been natural gas-fired, further
straining supplies. Plus, consumer demand for natural gas was
rising, as were the needs of gas-dependent industries such as
chemical and fertilizer production.

With supplies limited and demand growing, price hikes were
inevitable. Natural gas stayed around $2 per thousand cubic feet
throughout the 1990s but has shot up since, averaging $9 per
thousand cubic feet in 2005. If the price of gasoline had risen
that much in percentage terms, it would exceed $5 per gallon.

This rise has brought serious consequences. Electricity prices are
higher, and only a remarkably mild winter prevented residential
natural-gas bills from skyrocketing these past few months. Natural
gas-using industries have closed 100 facilities over the past
decade, affecting as many as 100,000 jobs. Of the 120 major
chemical facilities now in the planning stages or under
construction worldwide, only one is in the United States.
Uncompetitive natural-gas prices are largely to blame; the price of
gas is sharply lower nearly everywhere else.

Fortunately, there's a simple and obvious solution. A substantial
amount of natural gas in the U.S. isn't being utilized. According
to several estimates, as much as several decades' worth of
additional supply may be untapped. Much of it lies offshore and
can't reach the market without policy changes from
Washington.

Sen. Pete Domenici, chairman of the Senate Energy and Natural
Resources Committee, recently introduced a bill that would open the
so-called Lease Sale 181 area of the Gulf of Mexico for energy
leasing. Domenici's committee passed the bill, 16 to 5, on March
8.

This gas-rich area -- containing an estimated 6 trillion cubic feet
of gas, as well as some oil -- lies off Alabama and the Florida
panhandle. The proposed drilling would occur well offshore and
wouldn't be visible from land. Technically, Lease Sale 181 is not
one of the areas subject to federal restrictions on drilling, but
strident opposition from Florida's congressional delegation has
blocked its opening.

To address Florida's concerns, Domenici's bill would forbid
drilling within 100 miles of the state's coast. Yet, despite this
massive buffer, Sen. Bill Nelson, D-Fla., has threatened to
filibuster the bill, and Sen. Mel Martinez, R-Fla., has introduced
an alternate bill that would virtually outlaw new drilling within
150 miles of his state, thereby putting most of Lease Sale 181
off-limits. With this opposition, bipartisan support for the bill,
already strong, will be crucial for it to pass the full Senate and
the House.

At the same time, the Department of the Interior is trying to open
Lease Sale 181 through an administrative procedure. Sen. Domenici
and others believe that legislation would expedite the matter.
Indeed, timeliness is one of the advantages of the 181 area because
it lies near the existing pipeline system. This additional energy
could be brought online quickly.

Lease Sale 181 is only one of many promising offshore areas
currently blocked to development. Other proposals in Congress would
go much further than Domenici's and give all coastal states the
option to allow oil and gas drilling off their coasts. These bills
also would give states a share of leasing and royalty
revenues.

Anything Congress can do to increase domestic natural-gas
production will benefit those Americans impacted by high
natural-gas prices -- that is, almost everyone. Opening Lease Sale
181 would mark the first significant expansion of domestic gas
production in many years and could lead to other offshore areas
being opened.

The nation's natural-gas problem is a self-imposed one. Opening
Lease Sale 181 is a first big step towards a solution.

Ben
Lieberman is a senior policy analyst at The Heritage Foundation
(heritage.org), a Washington-based public policy research
institute.